There Is No “Great Resignation”

Twitter and Reddit are celebrating a national victory of labor over employers, who are forced to increase the wages they offer in order to fill an estimated 10.4 million job openings with 7.4 million available workers. Meanwhile, with such a high number of open positions, employees are moving on from their jobs in droves. There’s a nationwide shortage of truckers, nurses, and fast-food workers, grocery shelves are routinely empty, and retailers hoping to ramp up for the holidays are having to pay massive bonuses to get help.

This has been labeled the “Great Resignation”. It’s not.

The following is a simplification, but it’s close enough: There exists a phenomenon evocatively (if unimaginatively) labeled “price stickiness” by Keynes. This is a term for that tendency for people to accept a price as reasonable regardless of the surrounding economic conditions. Americans think of gasoline priced at $3.50 per gallon as high even though, counting inflation, it’s the same effective price as it was in 2004, at $2.60 per. To put it another way: Our parents might balk at breaking a $20; we might balk at breaking a C-note; the kids understand that there simply are no big bills in circulation.

In order for people to snap out of their preconceptions, it takes a startling event. That’s the reason old-time salesmen would go around telling dirty jokes: the mental shock on a small-town shopkeeper would create a temporary receptivity. And COVID has us thinking differently than we did two years ago.

But the changes aren’t as fundamental as people seem to think. While conservatives and Boomers tend to blame labor shortages on rent moratoriums, expanded unemployment, and stimulus funds, the numbers simply don’t add up. On the other end of the political spectrum, activists are unionizing at Starbucks to take advantage of the strong market — potentially a smart move, but the timing is nevertheless founded on false assumptions. Forbes tells us there’s a shortage of people in the labor market; The Economist is under the impression that people aren’t actually leaving their jobs, merely moving from one position to another.

The most simple-minded explanation is that a million Americans have died from COVID, so obviously they can no longer do their jobs. There’s little truth to the contention; half were of such extreme age that they were highly unlikely to be employed, and a moderate percentage of the remainder were already afflicted with health conditions that made it difficult for them to hold jobs. In short, COVID has removed, net, more consumers than providers from the economy.

However, it has also driven a large number of people aged 55 and older into early retirement. (CNN scooped me on this while I was writing, but we both got it from the same place.) This isn’t terribly shocking; real estate is way up and the markets are booming, which makes it a perfect time to retire — and COVID is hardest on the elderly, which makes them want to retire. The Labor Force Participation Rate for under-55s — the number of people in the potential workforce who are trying to work — has dipped slightly, whereas if we count the 55-to-65 population, we show over 3 million who have permanently left the workforce. (Repeating for the hard-of-reading: They aren’t all dead; most retired. We checked.) More telling, the un-retirement rate dropped by about 10% during the same period.

Remember, however, that our present unemployment woes are by sector, not across-the-board. These numbers neatly explain the great trucker shortage, which you’ll note began in 2019 and has just gotten worse since. It also accounts for a substantial fraction of the nursing shortage, though that has been endemic for a number of years. These two sectors are both traditionally filled by older employees, who are retiring en masse.

What it doesn’t explain is service-sector unemployment. Truly vast numbers of reopening restaurants have found it increasingly difficult to re-staff following the closures of 2020, and in many cases are offering hefty wage increases and hiring bonuses. Of the 2.2 million servers employed in 2019, the majority faced sudden termination and subsequent unemployment; many simply found other jobs. Right now, the hospitality industry (15.5 million) is running about 4% understaffed nationwide, and has actually added positions during the reopening, which rather exacerbates the issue.

One of the key factors here is that service employees have overwhelmingly opted to go the self-employment or niche worker route. There are presently just over 2 million DoorDashers alone (4 million in the food delivery industry), plus two million working rideshare and over a million shoppers for Instacart and their competitors (there’s substantial overlap). As restaurants closed, home delivery boomed; while these aren’t listed as traditional jobs in employment statistics, millions of Americans nevertheless rely on them for their entire income.

These are, of course, just snapshots; the complete economic picture is too complex for even economists to understand, much less for a mere blogger to not only comprehend but then readily communicate to his readers (however brilliant you may be). And yet, between the two factors — retirement and the niche economy — we’ve accounted for nine million people and twelve million jobs. If we assume both Forbes and The Economist (above) are right, we’ve accounted for all three million unfilled positions without having any across-the-board mass resignation.

Regardless, we are in fact experiencing a situation in which there exists a labor shortage in certain specific areas — truckers, nurses, food service, yes; but also teachers and factory workers and so on. What should we do? What should government do?

For workers, there presently exists a great deal of potential flexibility in the job market. If you don’t like what you’re doing, long-haul truckers earn a decent living, and teachers have great benefits. If you’re already earning six figures, this means you’ll probably have a harder time than usual replacing lost co-workers and subordinates.

If you run a restaurant, you’ve got a problem. In fact you’ve got more than one; labor costs are going up and there’s nothing you can do about it, and at the same time food and energy costs are also rising. The only good news is, your rent is probably on a long-term lease, and inflation will outpace increases over the next few years. You’re going to have to raise menu prices and see if it costs you custom. (Also, install HEPA filters. The price tag is tiny compared to the customer satisfaction benefit.)

If you’re working ride-share or food delivery, you should understand: If even a blogger can explain the present labor shortage, the government is certainly aware and will be taking steps. New state and local legislation will encourage unionization; the Department of Labor will be watching for ways to enforce hourly wage laws; the IRS will have instructions to monitor your taxes. Over time, it’s possible that a Democratic Congress will make it harder for you to stay where you are — and this in an industry where the per-hour income is under $20 before expenses, but the profit margin is so narrow that even the largest employers find it hard to post profits.

Ideally, I’d advise we open up the borders to increase our labor supply until it comes close to filling the present demand. Remuneration will remain high; while labor is one exception to the Law of Demand (it takes 18 years 9 months to produce a new laborer, and conditions don’t remain stable for that long) so long as there’s a perceived shortage, skilled workers will still command a decent wage. More to the point: Employment sectors will fill the gaps one way or another, and Social Security can use the money from documented versus undocumented labor.

It turns out there is a new normal, and it’s very similar to the old one. Unfortunately, by the time we’ve adapted to it, we’ll have another, slightly different new normal.


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NOTE: Leading image adapted from one taken from an article published at WhiteHouse.gov by Jared Bernstein, of the President’s Council of Economic Advisors. No copyright is asserted by TNFN.

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